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Corporate Social Responsibility and the Environment.
Professor Irene Lynch Fannon,
Faculty and Department of Law
University College Cork, 2014
@ireneucc
Climate Change and Corporate Actors
• “Climate-change adaptation is not an exotic agenda that has never been tried. Governments, FIRMS, and communities around the world are building experience with adaptation. This experience forms a starting point for bolder, more ambitious adaptations that will be important as climate and society continue to change.”
• Chris Field, a global ecology director at the Carnegie Institution in Washington and also co-chair of the report, entitled “Climate Change 2014: Impacts, Adaptation, and Vulnerability”.
“We constantly ask questions about what regulation is appropriate, why enforcement of laws or regulation are inadequate, why there is abject failure is some instances and most importantly why is regulation of corporate action viewed so often as an activity which is constantly resisted by the other side, the corporate side, why has this dichotomy emerged and how can we address it?”
Professor Irene Lynch Fannon, Faculty of Law, UCC.
Corporate law theory and corporate decision making (1)
• Managers constrained by shareholder primacy.
• This concept evolved from the 1990s onwards to a shareholder wealth maximisation principle. An ‘aberration’ of what was really required. (Millon).
• Compounded by a second theory-the efficient capital markets hypothesis- ECMH- corporate performance solely a capital markets issue.
• Now in need of refinement, even according to proponents: Gilson and Kraakman. ECGI Working Paper Series, 2014.
• Stanford Law and Economics Olin Working Paper No. 458 . European Corporate Governance Institute (ECGI) - Law Working Paper No. 242/2014 . Columbia Law and Economics Working Paper No. 470Note the politicisation of academic theory.
Corporate law theory and corporate decision making (2)
• Other more traditional views:
• The managerialist conception of corporate law, the business judgement rule responds to and protects social responsibility because it supports discretion.
• Norms amplify how the director should act. Provide aspirational guidelines.
The courts and the legislature.
‘The law does not say there are to be no cakes and ale, but there are to be no cakes and ale except such as are required for the benefit of the company.’ Bowen LJ
Hutton v West Cork Rwy Co. (1883) 23 Ch.D 654.
West Jet Christmas : Real Time Giving, December 2013 http://www.youtube.com/watch?v=zIEIvi2MuEk
The business judgement rule.
• Shlensky v Wrigley 95 Ill. App.2d 173
The courts will not interfere with business judgements in the absence of fraud, illegality or conflict of interest.
• Howard Smith v Ampol Petroleum Ltd.
[1974] AC 821
There is no appeal on merits from management decisions to courts of law.
Legislation protecting managerial discretion.
• S. 52 1990 Companies Act 1990.-directors will have regard to interests of employees.
• S. 172 2006 Companies Act (UK)- promoting the success of the company with regard to stakeholders including the environment.
• US-’Other stakeholder statutes’.
• Managers are permitted to consider other non shareholding interests but difficult to create an enforceable positive obligation.
How do we encourage good corporate decision making in relation to the Environment? • Regulation.
• Voluntary governance mechanisms: e.g. shareholder pressure.
• Pressure from other stakeholders, consumers, interest groups.
• Understanding how decisions are made.
How decisions are made.
• The interplay between obligations, legal norms (rules, regulations, judicial principles) which require individuals to act and non- legal norms which motivate individuals to act in certain ways.
• CSR actions as voluntary actions are an expression of this phenomenon.
Development of Norm Scholarship in Corporate Law Theory.
Exploring how people act either in economic terms (rational wealth maximisers?) or in relation to the law (motivated by non legal norms).
Rock and Wachter: “Islands of Conscious Power: Law, Norms and the Self-Governing Corporation” 149 University of Pennsylvania Law Review (2001) p. 1699. Symposium, “Law, Economics and Norms” 144 University of Pennsylvania Law Review 1643 (1996) and Symposium, “Social Norms, Social Meaning and the Economic Analysis of Law” 27 Journal of Legal Studies, 537 (1998). See further Symposium “Norms and Corporate Law” 149 University of Pennsylvania Law Review (2001)
Norms and non legal norms and the Environment.
• Green: externalised norms -those which are externally enforced through loss or gain in reputation and internalised norms- which are described as self imposed constraints.
• Suchmann: a socially constructed system of norms, values, beliefs and definitions….they contribute to an individual’s sense of legitimacy.
Three reasons why people act.
• Reputation
• Taste for a broader principle (Environment as a social good)
• Commitment
The EU and CSR
• Legal compliance and voluntary socially responsible actions are different.
• Corporate social responsibility is not a substitute to regulation or
legislation but perhaps a step on the way.
• But can law, soft law and reporting obligations prompt or create non legal or social norms prompting people to act?
ABC of The main instruments of Corporate Social Responsibility, DG Employment and Social Affairs. www.europa.eu.int.
Economic Performance and Social Europe.
• “An effective approach (to corporate governance) will foster the global efficiency and competitiveness of business in the EU. Well managed companies, with strong corporate governance records and sensitive social and environmental performance, outperform their competitors. Europe needs more of them to generate employment and higher long term sustainable growth.”
• (COM (2003) 284 final). DG Internal Market.
The EU and Globalisation.
• Management of industrial change.
• Supply chain management: labour rights and sustainable development.
• Environmentally responsible practises.
• The global context. Europe to provide leadership?
The dark side of globalisation and the mobility of capital.
• Globalisation as opportunism. • CSR as the alternative approach. Norms viewed
as the way forward and supported by law and economics scholars.
• De-regulation rather than regulation.
• Voluntary standards rather than universal minimum standards.
• Avoidance of regulatory environments.
